November 2013

(This is a guest blog post from guest blogger John Sullivan, Esquire, a lawyer who focuses his practice on DBE disparity studies. He can be reached at jcharlessullivan@yahoo.com)

Last month ground was broken on the first high speed rail system in the United States. The California High Speed Rail will run from Los Angeles to San Francisco, with trains traveling at speeds exceeding 200 miles per hour. Eventually the system will total 800 miles with two dozen stations.

Not surprisingly the project will not be cheap. Presently the price tag is over $91 billion. But that $91 billion is nearly triple the original estimate of only five years ago, so the price tag will quite possibly climb into twelve figures. It’s the biggest construction project in America.

Also unsurprisingly, the project is generating lawsuits. The lawsuit most likely to enjoy a quick victory, however, has not been filed. That would be a challenge to the California High Speed Rail Authority’s race-based set aside.

30% of every contract dollar (at the current estimated cost of $91 billion that would be $27 billion) must go to businesses certified in four groups. The constitutionality of preferences benefitting three of these groups is clear: small businesses, disabled veteran businesses enterprises, and micro businesses.

Preferences benefitting a fourth group, though, are just as clearly unconstitutional. The California High Speed Rail Authority has a 10% goal for Disadvantaged Business Enterprises (DBEs). White males are not presumed disadvantaged for the purposes of becoming certified as a DBE. Women, as well as all other races and ethnicities, are presumed disadvantaged. That makes DBEs a racial preference.

Racial preferences in public contracts like the California High Speed Rail are only allowed if discrimination in the market area has been identified. This is done with a disparity study. This has been required since the US Supreme Court decided Croson 25 years ago. Across the country more than 200 disparity studies have been completed. There is no disparity study for the California High Speed Rail and so no evidence of discrimination.

There is not even an explanation why the DBE goal is 10%. The California High Speed Rail Authority is a recipient of federal Department of Transportation funds and as such must set goals based on the level of DBE participation expected “absent the effects of discrimination.” (49 Code of Federal Regulations sec. 26.45 (b)) The 10% figure seems to have been picked out of the air.

The biggest construction project in America is awarding contracts unconstitutionally.

Often construction unions will force ask non-union construction firms to hire a union worker for employment on a construction project where the non-union firm is completing work. Faced with the threat of a picket line, many contractors consider the employment a minor tax inconvenience in exchange for labor peace and decide to hire the union worker. After all, what is the worst that could happen when employing one worker on a project that will be completed soon? In short, plenty, including inadvertently becoming bound to the terms of a union’s collective bargaining agreement and owing union benefits funds significant sums.

First, unions may ask you to sign a “letter of assent.” or some other agreement when you agree to bring on an union member to your job site. This agreement needs to be reviewed carefully because it may reference that you are agreeing to be bound by the terms of the collective bargaining agreement, which may you never have seen let alone read.

Second, several courts have held that you can become bound by the terms of a collective bargaining agreement without signing anything “rather [a]ll that is required is conduct manifesting an intention to abide and be bound by the terms of an agreement.”

The Third Circuit case of New Jersey Reg’l Council of Carpenters v. Jayeff Const. Corp., shows how you can end up on the wrong end of a lawsuit by a union claiming your firm owes it benefits pursuant to a collective bargaining agreement it never signed.

In that case, the Court explained that Jayeff is a commercial construction contracting company that hires subcontractors to work on its projects. Jayeff was a merit or open shop contractor which means it is not signed to a collective bargaining agreement, does not hire employees through a local union hiring hall, and it does not require employees to join or financially support a union as a condition to employment. However, Jayeff made the mistake of employing members of the Carpenters’ Union on certain projects. The Court found that between 2003 and 2009, Jayeff voluntarily remitted fringe benefits for five employees who were members of the Carpenters’ Union. None of these individuals performed carpentry work for Jayeff but were, instead, employed in managerial positions.

In 2009, the Carpenters’ Union alleged that Jayeff should have made fringe benefit contributions on behalf of all its employees, not just the five members of the Carpenters’ Union and claimed Jayeff owed the Union over $250,000. A protracted legal dispute lasting over three years ensued. Ultimately the Third Circuit ruled in favor of Jayeff finding its action did not demonstrate an intent to be bound by the CBA. However, victory for Jayeff undoubtedly came at the cost of significant legal fees and the stress of dealing with this litigation for multiple years both of which could have been avoided by simply not agreeing to hire Carpenters’ Union members.

About the Author

Wally represents contractors (and subcontractors) and developers. His clients build and develop residential, commercial, and industrial properties nationwide. Wally enjoys working with the owners of the businesses he represents because they tend to be entrepreneurs and all around interesting people.